08-Oct-2018 • Personal Finance

Australians love buying new cars and are forking out tens of thousands for the luxury, despite having a number of other financial commitments and goals, a new survey by ME reveals.

The status new cars provide plus falsely assuming new cars cost less over time, were found to be the key reasons behind the obsession.  

Key findings from the survey of 1,000 car owners include: 

•    New cars are more popular than old: 53% of Australian car owners purchased their car new versus 47% who purchased a pre-loved vehicle. 

•    New car buyers are shelling out $20,000 more than used car buyers. The average amount spent on new cars was $34,000 compared to $14,000 on used cars. 

•    Adding to the cost of new car purchases is obtaining finance. While 33% of car owners overall took out finance to buy a car, 41% of new car owners borrowed to buy and 59% of Gen Z car owners borrowed to buy. 

•    Also adding to the expense are unexpected running costs: 25% of all car buyers said their car’s running costs were higher than expected, increasing to 39% among Gen Z. 

ME Money Expert, Matthew Read said good financial sense often takes a backseat when buying new wheels, particularly among young generations. 

“Status is one of the key reasons we’re obsessed with new cars: 51% of new car buyers said ‘the car they drive says something about them so they prefer to purchase new cars’, rising to 64% among Gen Y. 

“Almost half (47%) of Gen Zs even agreed they ‘would feel embarrassed driving a used car’. 

“Owning a new car is a nice luxury, but could $20,000 be used for another savings goal like a house deposit or even simply covering the rising cost of expenses?”

According to ME’s latest Household Financial Comfort Report released earlier this month, more Australians are feeling strapped for cash, and are being forced to dip into their savings to cover the rising cost of living expenses.

Read said another factor that might explain the popularity of new cars was a misunderstanding about the relative running costs of new cars versus used cars, with many owners mistakenly thinking new cars cost less overall. 

“Around 61% of car owners agreed with the statement ‘used cars will cost you more in the long run (e.g. maintenance, servicing costs)’, rising to 79% among Gen Z.

“But modern cars are generally well-made and buyers can expect them to run for many years before more serious and costly maintenance is required. 

“Furthermore, 65% of respondents failed to identify depreciation as the biggest cost of owning a new car in the first three years, including 86% among Gen Z. 

“A new car loses significant resale value as soon as you drive out the door, a pattern that continues over the first few years of its life, making it one of the biggest costs of owning a new car. 

“You can buy a two or three-year-old car for much less and it won’t necessarily cost more to run, especially if a preventative approach has been taken to maintenance. 

“It might not seem as glamorous as a new car, but there are thousands of well-maintained and serviced used cars available. If you do your research and negotiate well, buying a pre-loved vehicle could save you a lot of money.”
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Editor notes: 
ME surveyed 1,000 Australians who own a car in June 2018 via an online survey method. 
Generational definitions are Gen Z: 18-24, Gen Y: 25-34.

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